JP Morgan under Shadow of Criminal Prosecution over Bernie Madoff

Banking giant JP Morgan had more added this week to its plate of woes when word was announced that U.S. Federal authorities are looking to criminally prosecute certain members of the corporation.

Authorities allege that some members of JP Morgan knew about the activities of one of its clients, Bernard L. Madoff, and the Ponzi scheme that landed him in prison to serve a 150-year sentence.

The announcement came in the midst of current negotiations between the bank and Federal officials pertaining to a tentative settlement of $13 billion regarding the bank’s practices over its sales of troubled mortgage-backed securities. These sales led to the 2008 financial crisis.

The settlement would satisfy investigations at the state and federal levels with regard to these troubled securities.

JP Morgan and Federal prosecutors have been in discussion as to whether or not to seek delayed prosecution with charges related to the bank’s knowledge of Mr. Madoff so as not to disrupt the stability of the large financial firm.

Delayed prosecution would mean that a fine would be levied on JP Morgan along with an agreement that charges will be pressed should the bank violate laws in the future.

Bernie Madoff was the perpetrator of what has been noted as the largest fraud against investors in the history of the U.S. He did this through his investment securities firm that he was the chairman of and by means of a grand Ponzi scheme.

At the end of Mr. Madoff’s trial and sentence, it is estimated that investor losses totaled $18 billion. Madoff was sentenced in 2009.

A Ponzi scheme refers to a type of fraudulent investment where the investor is paid returns but not on the interest earned by the security. Instead, it is paid by the money from other investors into the same scheme.

Ponzi schemes typically have high rates of return that make them too good to be true. This crime is named after Charles Ponzi who became famous for it in 1920.

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Posted by on Oct 25 2013. Filed under Finance, New. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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